by SignalFactory · February 18, 2020 | 08:22:39 UTC
Japan’s
economy, the world’s third-largest, shrank 1.6% in the fourth quarter of 2019,
according to a government estimate released on Monday. The decline from the
third quarter is the biggest contraction since 2014.
The
drop was even more severe — a 6.3% plunge — when measured as an annualized
rate.
The
fact that growth slowed in the three months to December wasn’t a surprise.
Analysts had been expecting as much as the country absorbed a sales tax hike
and grappled with the aftermath of Typhoon Hagibis, a powerful storm that hit
the country last fall.
But
Monday’s data was worse than the 0.9% quarter-on-quarter drop that analysts
polled by Reuters predicted. And the spread of the coronavirus now threatens to
stamp out hopes for a recovery in the first quarter.
“A recession now looks all but inevitable,” said
Robert Carnell, chief economist and head of research for the Asia Pacific at
ING.
Japan
had made efforts before the outbreak to shore up its economy. Analysts at
Oxford Economics pointed out that a massive $120 billion stimulus package
announced by the government in December should help put a floor undergrowth.
But they added that the outbreak risks delaying the recovery.
The
virus has infected more than 71,000 people worldwide, mostly in mainland China
where it originated. Japan has more than 400 confirmed cases, the majority of
which have been recorded onboard a cruise ship docked off the Japanese port
city of Yokohama.
The
spread of the disease is of worldwide concern because of how important China
has become to the global economy. When the SARS epidemic broke out in 2004,
China comprised roughly 4% of world GDP. Now it makes up 16% of global output
and is the backbone of global manufacturing supply chains. It’s also home to
hundreds of millions of wealthy consumers who spend a lot of money on luxury
products, tourism, and cars.
The
dent to tourism is a major problem for Japan, which welcomed 8.1 million
Chinese tourists last year, according to the Japan National Tourism
Organization. More people visited from China than any other country.
Analysts
at Daiwa expect hotels, restaurants, and retailers to lose revenue if spending
by Chinese guests dries up.
Carnell,
of ING, wrote on Monday that the coronavirus will likely weigh on consumer
spending this quarter, contributing to the likelihood that Japan’s economy
enters recession. ING forecasts GDP to decline by 1.1% for all of 2020.
The
disease’s impact on industrial output also remains a question.
Major
automakers, for example, were forced to close plants in China to comply with a
government lockdown and are only recently restarting some production. Toyota
(TM) said on Saturday that it planned this week to restart shifts at some
Chinese plants, though they would not yet return to full capacity. And Nissan
(NSANF) told CNN Business on Monday that it would have to make “temporary
production adjustments” at some plants in Japan because of supply
shortages of parts from China.
The
disruption to Japanese auto supply chains seems small right now, analysts at
Capital Economics wrote last Friday. But they noted that other manufacturing
sectors in Japan are more reliant on China for parts.
The
Japanese GDP figures published on Monday kicked off a slew of troubling
economic data releases in Asia, stoking even more fears about how much the
coronavirus could weigh on the global economy.
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